The time and the pandemic allowed Air Canada lawyers and negotiators to discover two flaws in the contract whereby the Maple Leaf carrier would buy Transat for $ 720 million. If the transaction is approved, Transat shareholders will now have just 190 million to share.
Posted Oct 10, 2020 at 12:59 PM.
Updated at 1:26 PM
Air Canada and Transat announced on Saturday a revision of the agreement signed more than a year ago, in August 2019, which provided a price of $ 18 per share of Transat.
The News Air Canada's offer is now $ 5 a share. Transat shareholders have the option of receiving their consideration in cash or Air Canada stock at a ratio representing a price of $ 17.47 for Air Canada stock. The latter ended Friday at $ 16.09 on the Toronto Stock Exchange.
The price offered by Air Canada represents a 31.6% premium over the weighted average price of Transat shares over the last 20 days.
Since the start of the pandemic, Transat management had repeatedly assured that there was no way Air Canada could get rid of the deal and the expected $ 18 per share price.
Over time, however, two powerful bargaining levers have emerged. First, the transaction has yet to be approved by the authorities of the Government of Canada and the European Union. The agreement between the two companies was due to expire on December 27, after that because they had not obtained these approvals.
“We believe that the revised terms provide a strong incentive for the parties to resolve the concerns of regulators. to obtain regulatory approvals, especially with regard to the ability to offer corrective action, which should increase the likelihood that regulators will issue the necessary approvals before the new deadline of February 15, 2021, ”said a Saturday. press release the chairman of the special committee of the board of directors of Transat, Jean-Yves Leblanc.
In clear terms, Air Canada had thus far had a good time to reject any compromises proposed by Ottawa and Brussels to allay their fears related to competition. In doing so, she left them no choice but to decline the transaction and release her from the account.
"The motivation to do whatever it takes depends on the buyer's interest in seeing the deal go ahead, and there is more motivation at $ 5 than at $ 18," cautiously summarized Saturday. Transat's vice president of human resources and public affairs, Christophe Hennebelle.
Transat's position was further weakened when it realized that its liquidity would not last long and that it had to borrow. The agreement with Air Canada required the latter to approve any new loan, a normal clause in these types of transactions. This gave the buyer the opportunity to cash in on his approval.
The Transat press release on Saturday also announced that new funding of 250 million had been brought in, leaving no doubt that the two announcements were linked.
"The new agreement made it possible to obtain financing", Mr. Hennebelle cautiously summarizes again.
The new agreement was unanimously ratified by the Transat board of directors. Shareholders will in turn have to approve it at a special meeting, the date of which has not yet been set, but is expected to take place in early December.
The marriage could be ratified at the end of the month. January or early February, Transat said.